Repossession Recovery and Bankruptcy

Repossesion or Seizure: Recovering a Repossessed or Seized Vehicle with Chapter 7 or Chapter 13 Bankruptcy

Repossesion or seizure of a car or other personal property is one of the most common creditor collection methods. It is possible to recover a vehicle or other property that has been repossessed or seized prior with the filing of a Chapter 7 or Chapter 13 bankruptcy, though it is important to keep in mind the difference between a “repossessed” vehicle and a “seized” vehicle when looking at the benefits.

Repossession of Vehicles

A repossessed vehicle is a vehicle with a lien on it for which you are making secured debt installment payments. The vehicle loan lender is partial owner of the vehicle along with you, listed as a secured interest on the vehicle’s title. The vehicle is essentially the collateral for the loan the lender made you in order to buy the vehicle. If you default on the payments, under every contractual purchase agreement for a vehicle loan, the lender retains the right to repossess the vehicle.

Seizure of Vehicles

A seized vehicle is a vehicle which is seized by some third-party creditor who has obtained a collections lawsuit judgment against you in satisfaction or partial satisfaction of the judgment (depending upon what the vehicle is worth relative to the amount of the judgment). This is a car you own in full, with no other secured lien interest. Seizure of vehicles is a common method of collecting on a lawsuit judgment.

The moment you file a bankruptcy petition, a “master injunction” under Federal law called the Automatic Stay Against Collections is enforced against all of your creditors, preventing them from taking any action constituting the collection of a debt, or even from failing to stop ongoing actions constituting the collection of a debt.

A bankruptcy filing will require the local district court to close any ongoing collection lawsuit down entirely the moment it is notified of the bankruptcy filing. The filing of a bankruptcy petition triggers an obligation under the automatic stay for the automatic return of seized or repossessed property. Failure for a creditor to do so can result in monetary sanctions being awarded to the filing debtor by the Bankruptcy Court. The Hilla Law Firm, PLLC is experienced in pursuing non-complying creditors for sanctions and other damages.

However, what happens to the vehicle or other property once it is returned depends greatly upon whether the car was repossessed pursuant to a secured creditor interest or simply seized.

If the vehicle was simply seized, that’s it. The car is yours again, and the debt owed to the seizing creditor will be simply discharged.

If the vehicle was repossessed for deficient loan installment payments, however, the vehicle or other property will only be yours to keep if you can quickly make yourself current on the deficient payments, or if you can get current on the payments through a Chapter 13 bankruptcy payment plan.

In a Chapter 13 bankruptcy, you can pay up your deficient payments over the course of a 3-5 year Chapter 13 payment plan at 0% interest, which, depending upon the length of the loan repayment term relative to the length of the Chapter 13 plan, will generally assure that you become current on your payments and complete your payments within the life of the payment plan so that you exit the bankruptcy owning the car in full.

Depending upon the original purchase date of the car, the mileage on the vehicle, and the fair-market value of the vehicle, you may also be eligible to “cram down” your payments in the Chapter 13 bankruptcy so that you pay in full only the fair-market value of the vehicle and pay in part and discharge in full any unpaid balance of the excess debt owed.

If you have had a vehicle repossessed or seized, it is vital to contact us immediately. After a repossessed or seized vehicle is sold, a bankruptcy will still discharge the underlying debt owed for the vehicle or for which the vehicle was seized—but it will not be possible to get the vehicle back after it is sold.

Please contact The Hilla Law Firm, PLLC to schedule a free, initial consultation so that we can examine quickly your options for retrieving your property from creditors.